Introduction of IP-based Fixed-Line Phone Network

(1)

Press report materials

Introduction of IP-based Fixed-Line Phone Network

Introduction of IP

-

based Fixed

-

Line Phone Network

KDDI Corporation

(2)

Plan for IP-based Fixed-Line Phone Network

Plan for IP

(3)

2 Basic Concept Behind IP

Basic Concept Behind IP

-

based Fixed

-

Line Phone Network

■

KDDI has long intended to build an advanced telecommunications network

using IP technology, and in October 2003 launched “KDDI Hikari Plus,” a

three-pronged service utilizing FTTH to provide TV and video, high-speed Internet

and high-quality IP telephony.

■

**On the other hand, estimates* indicate that by fiscal 2007 more than 20 million**

households will rely solely on phone service and will use subscriber phone

lines (metal lines).

*Based on KDDI’s research

■

KDDI will beat the industry in completing its IP-based fixed-line phone service

to extend affordable service using IP technology to customers who do not use

broadband.

■

KDDI has long intended to build an advanced telecommunications network

using IP technology, and in October 2003 launched “KDDI Hikari Plus,” a

three-pronged service utilizing FTTH to provide TV and video, high-speed Internet

and high-quality IP telephony.

■

**On the other hand, estimates* indicate that by fiscal 2007 more than 20 million**

households will rely solely on phone service and will use subscriber phone

lines (metal lines).

*Based on KDDI’s research

■

KDDI will beat the industry in completing its IP-based fixed-line phone service

to extend affordable service using IP technology to customers who do not use

broadband.

(4)

Overview of Plan for IP

-

based Fixed

-

Line Phone Network

KDDI’s existing fixed-line

phone network

Customer

ＫＤＤＩ’s high-quality IP network (CDN) DION IP

telephony（best-effort)

Exchange

Router

softswitch

Hikari Direct Hikari Plus

Phone

（FTTH）

MYLINE

DION IP telephony

Generally three floors high

NTT East / West’s fixed phone network

NTT East / West’s fixed phone network

Telephone exchange

SDH transmission

channel Optical

fiber

NTT office

*CDN (Contents Delivery Network) integrates data and voice, prioritizing the transmission of voice over data so that the quality of the telephone calls are equivalent to that of existing fixed lines.

■

Phone service primarily provided through the existing fixed-line phone network

■

KDDI’s Hikari Plus Phone is provided through CDN*

■

Phone service primarily provided through the existing fixed-line phone network

■

KDDI’s Hikari Plus Phone is provided through CDN*

Current Network

(5)

4 Overview of Plan for IP

Overview of Plan for IP

-

based Fixed

-

Line Phone Network

KDDI’s high-quality IP network (CDN)

Customer Customer

DION IP telephony (best-effort)

Router

softswitch

Hikari Direct Hikari Plus

Phone (FTTH）

MYLINE

DION IP

telephony

Generally two

floors high

NTT East / West’s fixed phone network

NTT East / West’s fixed phone network

Softswitch Router Optical fiber

Gateway with

existing phone

network

NGW*

KDDI Metal Plus

（

dry copper

）

NTT office NTT office

Network After

Switch to IP-based

System

Network After

Switch to IP

Switch to IP-

-based

■

Expand CDN, the backbone of Hikari Plus, and replace existing fixed-line phone

network with softswitch

■

Provide customers with direct connections through Hikari Plus, Hikari Direct

and Metal Plus

■

Expand CDN, the backbone of Hikari Plus, and replace existing fixed-line phone

network with softswitch

■Provide customers with direct connections through Hikari Plus, Hikari Direct

based

System

_{and Metal Plus}

(6)

Differences Between 050 IP Telephony and High

-

quality IP Telephony

IP phone

(companies)

EGW

router

DION IP telephony

(homes)

ADSL modem

Hikari Plus Phone

(homes)

EGW

PBX

Hikari Direct

(companies)

optical

M/C

router

DSLAM _router

Existing phone network

Gateway

softswitch

metal

CDN

DION

NTT-LS

NTT’sGC station

NGW

M/C HGW

softswitch

With quality controls

IP networks integrating data and voice prioritize the

transmission of voice over data so that the voice

quality is equivalent to that of existing fixed lines.

Quality Control:

KDDI’s Internet lines

optical metal

KDDI Metal Plus

(homes, companies)

050 number

OAB-J number

(7)

6 Configuration of

Configuration of

KDDI

’

s

Metal Plus Facilities

■

Customers’ subscriber phone lines (metal lines) are connected directly to KDDI’s high-quality IP network

■

Basic fees include domestic, international and mobile phone costs, creating a comprehensive service

■

Customers’ subscriber phone lines (metal lines) are connected directly to KDDI’s high-quality IP network

■

Basic fees include domestic, international and mobile phone costs, creating a comprehensive service

ＮＴＴ

’s GC station

ＭＤＦ

Corporate customers

Metal line interval

ＭＤＦ

KDDI’s

high-quality IP

network (CDN)

Residential customers

NGW (Network Gateway):

IP telephony equipment for telephone

exchanges that converts between analog and

IP in an industry first

softswitch

PBX

NGW

Customers’ conventional subscriber lines can be used as is

Existing phones and PBX can be used as is

Shares high-quality IP network (CDN) built with

Hikari Plus

Shares high-quality IP network (CDN) built with

Hikari Plus

Existing

phone

network

IP phone

network (050)

IP telephony interval

IP telephony generally requires that the gateway for IP telephony be set up inside the customer’s residence, but this is not necessary for Metal Plus

(8)

Schedule for Introduction of IP

-

based Fixed

-

Line Phone Network

■

The introduction of an IP-based system to the existing fixed-line phone network will begin in fiscal 2005, and

the replacement with softswitch will be completed by the end of fiscal 2007

■

The introduction of IP to the fixed-line phone network will make it easier to adopt new IP telephony services

■

Provide customers with direct connections to reduce NTT access charges

■

The introduction of an IP-based system to the existing fixed-line phone network will begin in fiscal 2005, and

the replacement with softswitch will be completed by the end of fiscal 2007

■

The introduction of IP to the fixed-line phone network will make it easier to adopt new IP telephony services

■

Provide customers with direct connections to reduce NTT access charges

Existing fixed-line

telephone exchange

_softswitch

2007.03

2008.03

2004.03

2005.03

2006.03

Replace

October 2003: Hikari Plus starts (CDN operations are launched)

2009.03

October 2004: Hikari Direct starts

February 2005: KDDI Metal Plus starts

Fiscal 2005: Introduction of IP-based

system to fixed-line phone network starts

IP

introduction

completed

by end of

fiscal 2007

(9)

KDDI Metal Plus

(10)

Introduction of

KDDI

’

s

Metal Plus

■

Even customers with a single phone that do not use broadband will be able to use

this affordable phone service based on cutting-edge IP technology

■

The direct access new phone service using metal lines (dry copper) require no

work from the customer and can be used after KDDI makes a simple change

Service name

KDDI Metal Plus

Launch of Services

Customers may sign up from December 2004 and service

will start in February 2005

Service Area

Services will start in the Tomeihan area and gradually

expand nationwide, with the coverage rate to exceed 60%

in early fiscal year 2005

Sales Targets

Residences and companies

■

Even customers with a single phone that do not use broadband will be able to use

this affordable phone service based on cutting-edge IP technology

■

The direct access new phone service using metal lines (dry copper) require no

work from the customer and can be used after KDDI makes a simple change

Service name

KDDI Metal Plus

Launch of Services

Customers may sign up from December 2004 and service

will start in February 2005

Service Area

Services will start in the Tomeihan area and gradually

expand nationwide, with the coverage rate to exceed 60%

in early fiscal year 2005

(11)

10 Overview of

Overview of

KDDI

’

s

Metal Plus

Five Main Features of New Service

1. Basic charges are not by service area but standardized nationwide.

2. Push-button phone line will be offered as basic function.

3. The IP-based system makes call charges more affordable and simple.

4. The bill for basic charges and call charges are consolidated.

5. Telephone subscription rights are not needed

1. Basic charges are not by service area but standardized nationwide.

2. Push-button phone line will be offered as basic function.

3. The IP-based system makes call charges more affordable and simple.

4. The bill for basic charges and call charges are consolidated.

5. Telephone subscription rights are not needed

Functions comparable to fixed lines

1. Current telephone number (OAB-J number) can be used as is (number portability)

2. Customers can dial emergency numbers (110, 118, 119)

3. Phone can be used even in power outages

4. Additional functions can be used (Caller ID, number notification request, blocks on

crank calls, call waiting and other additional services, as well as services

equivalent to voice warp, dial-in and line combinations, will be provided. )

1. Current telephone number (OAB-J number) can be used as is (number portability)

2. Customers can dial emergency numbers (110, 118, 119)

3. Phone can be used even in power outages

4. Additional functions can be used (Caller ID, number notification request, blocks on

crank calls, call waiting and other additional services, as well as services

(12)

Overview of KDDI Metal Plus Charges

_{Overview of KDDI Metal Plus Charges}

Basic charge

**1,500 yen per month (1,575 yen with tax) * Charges are standardized**

nationwide (no differentiation between service areas), includes push-button

phone functions

Installation charge

**100 yen per month (105 yen per month included) *applies to the first 60**

months after installation

Connection charges

8 yen/3 minutes for local calls, 15 yen / 3 minutes for long-distance calls

(8.4 yen / 3 minutes and 15.75 yen / 3 minutes including tax)

Additional services

Same as NTT East / West

Basic charge

**1,500 yen per month (1,575 yen with tax) * Charges are standardized**

nationwide (no differentiation between service areas), includes push-button

phone functions

Installation charge

**100 yen per month (105 yen per month included) *applies to the first 60**

months after installation

Connection charges

8 yen/3 minutes for local calls, 15 yen / 3 minutes for long-distance calls

(8.4 yen / 3 minutes and 15.75 yen / 3 minutes including tax)

Additional services

Same as NTT East / West

Residences

Basic charge

**2,400 yen per month (2,520 yen with tax) * Charges are standardized**

nationwide (no differentiation between service areas), includes push-button

phone functions

Installation charge

100 yen per month (105 yen per month including tax)

*applies to the first 60 months after installation

Connection charges

8 yen/3 minutes for both local and long-distance (8.4 yen / 3 minutes

including tax)

Additional services

Same as NTT East/West

Basic charge

**2,400 yen per month (2,520 yen with tax) * Charges are standardized**

nationwide (no differentiation between service areas), includes push-button

phone functions

Installation charge

100 yen per month (105 yen per month including tax)

*applies to the first 60 months after installation

Connection charges

8 yen/3 minutes for both local and long-distance (8.4 yen / 3 minutes

including tax)

Additional services

Same as NTT East/West

Companies

(13)

12 Summary

Summary

IP-based fixed-line phone system will be completed by the end of fiscal 2007,

resulting in greater efficiency and lower costs

IP-based fixed-line phone system will be completed by the end of fiscal 2007,

resulting in greater efficiency and lower costs

Introducing cutting-edge IP technology will enable customers not using broadband

to take advantage of this more affordable service

Introducing cutting-edge IP technology will enable customers not using broadband

to take advantage of this more affordable service

KDDI considers the customer’s perspective.

Adding KDDI Metal Plus to the line-up of Hikari Plus and Hikari Direct will result in a

total service meeting customers’ diverse needs.

KDDI Metal Plus, a high-quality IP telephony service, does not bill basic charges by

service area, but has standardized these charges nationwide.

IP means that connection charges are no longer based on distance, making charges

more simple.

KDDI considers the customer’s perspective.

Adding KDDI Metal Plus to the line-up of Hikari Plus and Hikari Direct will result in a

total service meeting customers’ diverse needs.

KDDI Metal Plus, a high-quality IP telephony service, does not bill basic charges by

service area, but has standardized these charges nationwide.

IP means that connection charges are no longer based on distance, making charges

more simple.

(14)

Appendix 1

Appendix 1 -

-

Comparison of Direct

-

Access Fixed

-

Line Phone Service Charges (Residential Use)

Metal Plus Otoku Plan ＮＴＴSubscriber Phone

Basic Charge

Standardized 1,500 yen

（1,575 yen incl. tax) Included Push-button Phone Charge

Class 3 1,550 yen （1,627.5 yen incl. Tax）

Class 2 1,400 yen （1,470 yen incl. Tax）

Installation Charge

100 yen

（105 yen incl. Tax）

100 yen

-Push-button-Phone Charge is free Push-Phone 390 yen

（409.5 yen incl. Tax）

Push-Phone 390 yen

Other charges are the same as NTT Caller ID 400 yen _{Cut-in 300 yen} _（（_{315 yen Incl. Tax}420 yen incl. Tax_）） No. Display 400 yen _{Call Waiting 300 yen}（_（420 yen incl. Tax_{315 yen Incl. Tax}）_）

8 yen

8.5 yen

（8.925 yen incl. Tax） Standardized nationwide 15 yen

（15.75 yen including tax）

20 - 80 yen

（21- 84 yen incl. Tax） Maximum 50% Discount

20 - 80 yen （ＮＴＴCommunications)

（21 - 84 yen incl. Tax） Variety of Discounts Available

International (US) 27 yen 180 yen

Maximum 50% Discount

160 yen （ＮＴＴcommunications) Variety of Discounts Available

To Mobile Phone to ａｕ51 yen （53.55 yen incl. Tax）

Others 54 yen （56.7 yen incl. Tax） 75 yen

（78.75 yen incl.Tax） 54 yen （ＮＴＴCommunications)

-

-72,000 yen

（75,600 yen incl. Tax）

Monthly Charges

Cost for facility & equipment Connec tion Charge Week-day daytime 3min. Charges for Additional Services Fixed Charges Residential Use Local Long Distance

* The table above represents the fees as of September 15, 2004. ※ only applies to the first 60 months after installation.

(15)

14

Appendix 2

Appendix 2 -

-

Comparison of Direct

-

Access Fixed

-

Line Phone Service Charges (Corporate Use)

Metal Plus Otoku Plan ＮＴＴSubscriber Phone

Basic Charge

Standardized 2,400 yen

（2,520 yen incl. tax) Included Push-button Phone Charge

Class 2 2,450yen （2,572.5 yen incl. Tax）

Installation Charge

100 yen

-Push-button-Phone Charge is free Push-Phone 390 yen

Push-Phone 390 yen

Other charges are the same as NTT Caller ID 1,200 yen _{Cut-in 300 yen} （_（1,260 yen incl. Tax_{315 yen Incl. Tax}_）） No. Display 1,200 yen

Call Waiting 300 yen （315 yen Incl. Tax）

Local

8 yen

8.5 yen

Long Distance

20 - 80 yen

（21- 84 yen incl. Tax） 55% Discount

20 - 80 yen （ＮＴＴCommunications)

（21 - 84 yen incl. Tax） Variety of Discounts Available

International (US) 27 yen 180 yen

15% Discount

160 yen （ＮＴＴCommunications) Variety of Discounts Available

To Mobile Phone 54 yen （56.7 yen incl. Tax） 75 yen （78.75 yen incl.Tax） 54 yen （ＮＴＴCommunications)

-

-72,000 yen

Monthly Charges

Cost for facility & equipment

Corporate Use Connec-tion Charge Week-day daytime 3min. Charges for Additional Services Fixed Charges

* The table above represents the fees as of September 15, 2004. ※ only applies to the first 60 months after installation.

(16)

Appendix 3

Appendix 3 -

-

Results of Competition in Telecom Market

1. Customer fees have dropped dramatically for services facing increasing competition.

2. On the other hand, customer fees for services facing little competition are on an uptrend.

1. Customer fees have dropped dramatically for services facing increasing competition.

2. On the other hand, customer fees for services facing little competition are on an uptrend.

400

80 1985

2004

(yen)

Weekday, longest distance for 3 min

- 80%

1,550

(yen)

Residential use (class 3)

Basic charges

13%

1,750

10

8.5 1985

2004

(yen)

Local call on weekday for 3 min

Local calls

-15%

Step

２ Step

３ 2,350

2,600

11%

R es. B u siness

Step

１ Status of custom

er

charges

Long-distance calls

2004

1985

NTT Communications (58%) KDDI (20%)

Japan Telecom (11%)

* Share of MYLINE and MYLINE Plus subscribers (those not subscribing are not included in the share) * Figures reflect subscribers as of the end of July 2004

(Source: MYLINE Carriers Association’s web site)

NTT East / West (72%) Electric (9%)

＊Share of MYLINE and MYLINE Plus subscribers (those not subscribing are not included in the share)

＊Figures reflect subscribers as of the end of July 2004 (Source: MYLINE Carriers Association’s web site)

KDDI (13%) Japan Telecom (7%)

Electric (6%)

Other (2%) Other (2%)

Status of com

p

eti

tio

n

(changes in market share)

Competitors (1.1%)

NTT East / West (98.9%)

* Figures are current as of March 31, 2004

(Source: Ministry of Public Management,Home Affairs, Posts and Telecommunications）